O'Brien Concrete Pumping, Inc.

Plain-English summary

O'Brien Concrete Pumping operated trucks with rotating auger blades inside concrete hoppers, and one operator was fatally crushed by the blades after a concrete pour. The company had removed bolts securing the heavy hopper grate so operators could raise it while cleaning and repositioning the auger. The Commission held that O'Brien's general safety training, on-the-job instruction, and distribution of equipment manuals did not satisfy the training standard because employees were not specifically taught to keep the grate down whenever the auger was running. It also held that the construction machine-guarding standard applied to the hopper and was violated because operators could raise the grate while the blades rotated. The Commission reversed the judge's vacatur of the training item, affirmed the guarding item, and assessed $1,750 and $3,500 respectively, for a total of $5,250.

Decision snapshot

• Cited standard(s): 29 C.F.R. § 1926.21(b)(2); 29 C.F.R. § 1926.300(b)(4)(ii)
• Outcome: Training violation reinstated with a $1,750 penalty; machine-guarding violation affirmed with a $3,500 penalty.
• Key point: Safety training must specifically track the applicable guarding rule and teach employees how to avoid the actual point-of-operation hazard; general warnings and manuals alone may be insufficient.

Full text (OSHRC public release)

SECRETARY OF LABOR,
              Complainant,
                    v.                            OSHRC Docket No. 98-0471
O’BRIEN CONCRETE PUMPING, INC.,
               Respondent.



                                       DECISION

Before: ROGERS, Chairman; and VISSCHER and WEISBERG, Commissioners.
BY THE COMMISSION:
O’Brien Concrete Pumping, Inc. ("O’Brien") was issued a serious citation following
an inspection conducted in response to a fatal accident. O’Brien specializes in providing
concrete to construction locations that are inaccessible to traditional concrete mixing trucks.
Concrete is placed inside a large hopper located at the rear of each of the concrete pump
trucks used by O’Brien and mixed by rotating steel auger blades located inside the hopper.
A pump then draws the concrete into a long retractable tube known as an "extension boom",
which is used to direct the concrete to the area in which it is to be poured. After pouring
concrete at a construction site in Erie, Colorado, Kevin Dillon, a concrete pump truck
operator for O’Brien, was asphyxiated when he was crushed by the rotating auger blades
located inside the hopper of his truck.1
In the citation, the Secretary alleged three serious violations of standards related to
training, machine guarding, and lockout/tagout. A penalty of $3,500 was proposed for each
violation. Judge Sidney Goldstein vacated the training and lockout/tagout violations, but
affirmed the machine guarding violation, assessing the proposed penalty. At issue before the
Commission is whether the judge erred in his disposition of the training and machine

1
There were no witnesses to the incident and it is not clear exactly how Dillon came in
contact with the auger blades.
 2

guarding violations.2

                             TRAINING VIOLATION
     The Secretary has alleged that O’Brien violated 29 C.F.R. § 1926.21(b)(2) by failing

to train its employees on specific procedures regarding the safe operation and cleaning of the
concrete pump truck hoppers.3 After a pour, the truck operators are responsible for cleaning
residual concrete from the pump’s boom, hopper, and auger blades. The first step of the
cleaning process involves using a cylindrical rubber sponge to flush concrete out of the
extension boom. The truck operators then rinse the inside of the hopper, including the auger
blades, with water supplied by an on-board water tank and hose. In order to effectively rinse
the auger blades, the truck operators rotate the blades at various intervals during this
process.4
To facilitate the cleaning process, O’Brien removed the manufacturer-installed bolts
which secure a hinged metal grate over the hopper opening. This allows the 155-pound grate

2
The alleged lockout/tagout violation was not petitioned or directed for review and is not
before the Commission.
3
The cited provision requires as follows:
§ 1926.21 Safety training and education.
(a) General requirements.
....
(b)Employer responsibility.
....
(b)(2) The employer shall instruct each employee in the recognition and
avoidance of unsafe conditions and the regulations applicable to his work
environment to control or eliminate any hazards or other exposure to illness
or injury.
4
Because the auger blades and the water hose operate on the same power system, running
the blades at the same time as the hose reduces the water pressure to a mere trickle, making
it virtually impossible to effectively rinse the blades at the same time that they are being
repositioned.
 3

to be lifted by the truck operators so that the auger blades can be effectively rinsed, the
hopper can be completely flushed out, and if necessary, any hardened concrete can be
"chipped" out of the hopper with an appropriate tool. Truck operators also raise the hopper
grate to retrieve the rubber sponge used to flush the boom, which often becomes trapped
inside the hopper, as well as foreign objects, such as chunks of asphalt or tree roots, which
occasionally fall into the hopper.
During the inspection, compliance officers Stephen Yellstrom and Katy Buchanan
interviewed ten O’Brien employees, all of whom had experience as truck operators. Based
primarily upon the information gathered during these interviews, the Secretary argued that
O’Brien had failed to adequately train its employees on safe hopper cleaning procedures,
specifically the hazards associated with running the auger blades with the hopper grate
raised. O’Brien responded that the requisite training had, in fact, been provided pursuant to
its safety program, which included on-the-job training and monthly safety meetings. The
judge agreed with O’Brien and vacated the violation. Relying primarily upon the testimony
of Leon Hake, O’Brien’s regional manager responsible for safety and training, the judge
concluded that "all new hires were instructed in the safe operation of the cement pumps."
The judge also observed that "[s]o far as appears in the [interview] notes, not a single
employee expressed dissatisfaction with his training with regard to safety."5 We find that a
training violation exists and reverse the judge’s decision.

5
The record contains the written notes taken by one, and in some cases both, of the
compliance officers during the employee interviews, as well as an interview summary
compiled by compliance officer Yellstrom highlighting individual employee responses to
four key issues in the case. In vacating the training violation, the judge expressly stated that
he placed “more reliance on the written [interview] notes taken almost immediately after the
accident than upon the compliance officer’s recollection of the information supplied in
conversations with the employees.” O’Brien argues that this finding constitutes a rejection
of Yellstrom’s interview summary even though the judge never expressly refers to the
document in his decision. However, any alleged inconsistencies which may exist between
these documents do not appear to alter the conclusions which can be drawn from the
employees’ responses as initially documented in the compliance officers’ written notes.
 4

                                    DISCUSSION
     To prove a violation of § 1926.21(b)(2), the Secretary must show that the cited

employer failed to instruct employees on "(1) how to recognize and avoid the unsafe
conditions which they may encounter on the job, and (2) the regulations applicable to those
hazardous conditions." Superior Custom Cabinet Co., 18 BNA OSHC 1019, 1020, 1995-97
CCH OSHD ¶ 31,422, p. 44,416 (No. 94-200, 1997), aff’d without published opinion, 158
F.3d 583 [18 BNA OSHC 1513] (5th Cir. 1998); Concrete Constr. Co., 15 BNA OSHC
1614, 1619, 1991-93 CCH OSHD ¶ 29,681, p. 40,243 (No. 89-2019, 1992). An employer’s
instructions must be "specific enough to advise employees of the hazards associated with
their work and the ways to avoid them," and modeled on the applicable OSHA requirements.
El Paso Crane and Rigging Co., 16 BNA OSHC 1419, 1425 nn. 6 & 7, 1993-95 CCH
OSHD ¶ 30,231, p. 41,621 nn. 6 & 7 (No. 90-1106, 1993).
We find that O’Brien’s training efforts were incomplete with regard to instructing
employees about the requirements of OSHA’s regulations with regard to guarding the
hopper’s point of operation, i.e. the rotating auger blades, at all times the truck operators had
access to the "danger zone" created by the rotating blades.6 Although virtually all of the

6
Section 1926.300(b)(4)(ii), a violation of which is also alleged here,requires as follows:
§ 1926.300 General requirements.
(a) Condition of tools.
....
(b) Guarding.
....
(b)(4) Point of operation guarding.
....
(b)(4)(ii) The point of operation of machines whose operation exposes an
employee to injury, shall be guarded. The guarding device shall be in
conformity with any appropriate standards therefor, or, in the absence of
applicable specific standards, shall be so designed and constructed as to
(continued...)
 5

interviewed employees stated that O’Brien provided them with on-the-job training, their
training did not apparently include specific instruction on OSHA’s point of operation
guarding requirements. On the contrary, according to the responses of a majority of the
interviewed employees, O’Brien failed to provide employees with uniform hopper cleaning
instructions, leaving each truck operator to simply develop his own cleaning method based
upon the procedure he had been taught by a fellow operator. The parties agree that the truck
operators would raise the hopper grate and also periodically run the auger blades in order to
adequately clean the hopper. Although O’Brien’s safety manual, a copy of which was
distributed to each employee, generally warned that contact with the rotating blades could
cause serious injury, employees were not specifically instructed that the applicable OSHA
regulation required the rotating blades to remain guarded by the hopper grate at all times.7

6
(...continued)
prevent the operator from having any part of his body in the danger zone
during the operating cycle.
7
Commissioner Visscher agrees in finding a violation of § 1926.21(b)(2) because the
"applicable regulation" in this case, § 1926.300(b)(4)(ii), specifically requires that the auger
be covered whenever it is operated, and the employer could not identify any evidence that
instructions were given to its employees that track this requirement. He would also
emphasize that this training standard does not require that an employer instruct its employees
in the specific language of the OSHA standards, but only that its training track the
requirements of the applicable standards. In his view, the decision in this case is consistent
with previous decisions that have found that § 1926.21(b)(2) was not violated where the
"applicable regulation" is less specific in its scope and requirements than is the one at issue
here, and there was evidence that the employer’s training generally tracked the requirements
of the standard, even though the training may not have been completely documented. See,
e.g., El Paso Crane, 16 BNA OSHC at 1426, 1993 CCH OSHD at pp. 41,621-22 ("[a]n
employer’s instructions are not necessarily deficient just because they allow the employees
discretion as to how to proceed, particularly where the working circumstances are such that
no one form of protection is capable of being used every time."). See also Archer-Western
Contrac., Inc., 15 BNA OSHC 1013, 1020, 1991 CCH OSHD ¶ 29,317, p. 39,381 (No.
87-1067, 1991), aff’d without published opinion, 978 F.2d 744 [15 BNA OSHC 1953] (D.C.
Cir. 1992) (training found adequate under § 1926.21(b)(2) where employees properly
(continued...)
 6

   O’Brien also conducted monthly safety meetings and had a representative from

concrete pump truck manufacturer Putzmeister train employees on pump operation at an
annual two-day program, but the record fails to establish that these training sessions provided
any specific instructions related to guarding the auger blades or even cleaning the hopper.
Four of the ten interviewed employees reported that only general safety matters were
discussed at these training sessions. According to the testimony of regional manager Hake,
the two topics he consistently covered at safety meetings were the use of extension booms
around high tension wires and driving accidents.8 This training fails to satisfy the specific
requirements of § 1926.21(b)(2). See Superior Custom Cabinet, 18 BNA OSHC at 1020-21,
1995-97 CCH OSHD at p. 44,416-17 (violation of § 1926.21(b)(2) affirmed where employer
provided only general instructions regarding fall hazards and failed to model the instructions
on the applicable guardrail standards).
Supplying employees with the company’s safety manual, as well as Putzmeister’s
Operating Instructions for the concrete pump trucks, Putzmeister’s Safety Booklet, and the
American Concrete Pumping Association’s (ACPA) Safety Manual, also failed to meet the
requirements of the cited standard.9 Both the Operating Instructions and the Safety Booklet

7
(...continued)
performed crane rigging and signaling after some instruction in safety meetings); H.C.
Nutting Co. v. OSHRC, 615 F.2d 1360 [8 BNA OSHC 1241, 1241-42] (6th Cir. 1980)
(unpublished) (section 1926.21(b)(2) "does not outline any particular requirements for a
safety program" but does require "that an employer inform employees of safety hazards
which would be known to a reasonably prudent employer or which are addressed by specific
OSHA regulations.").
8
Hake also testified that he shared information with employees at safety meetings about
industry accidents, specifically one involving an employee who fell into a hopper. While
this information may have alerted employees to the hazards presented by unguarded rotating
auger blades, it failed to address the point of operation guarding requirements themselves.
9
Copies of the Putzmeister Operating Instructions were also placed in the concrete pump
trucks.
 7

specifically prohibit the operation of the auger blades with the hopper grate raised, and the
former expressly warns that the hopper grate should remain secured during cleaning. The
ACPA’s Safety Manual states that operators should never put their hands or other body parts
into the hopper when the hydraulic system is operational and should remove the hopper grate
only if the system is properly locked out.10 Although O’Brien required its employees to
affirm that they had read and understood these manuals by signing an acknowledgment form
attesting to that fact, four of the ten interviewed employees, including an operations manager,
were unaware of Putzmeister’s requirements for safe operation and cleaning, and one of the
employees admitted that he had "probably never read" any of the manuals.
Even if we were to assume that these materials adequately conveyed the requirements
of the standard, the fact remains that five of the ten employees interviewed by the
compliance officers expressly stated that O’Brien had never instructed them not to run the
auger blades with the hopper grate raised.11 See L & M Lignos Enterp., 17 BNA OSHC
1066, 1067, 1993-95 CCH OSHD ¶ 30,675, p. 42,570 (No. 92-1746, 1995) (violation of
§ 1926.21(b)(2) affirmed where employees received written instruction requiring the use of
fall protection at heights over ten feet but no explanation of the hazards that would require
the use of such fall protection). Although O’Brien regional manager Hake initially claimed
that employees had been trained not to run the auger blades with the hopper grate raised, he
was unable to identify on cross-examination how or when employees had been instructed
about this safety rule. Six of the interviewed employees, including the operations manager,

10
O’Brien also made available to employees training videos developed by the ACPA which,
according to regional manager Hake, contained the same type of information found in the
ACPA’s Safety Manual. Although the videos were apparently shown at safety meetings, it
is not evident whether they actually addressed the point of operation guarding requirements
or the hazards associated with running the auger blades with the grate raised.
11
Only one of the interviewed employees claimed that O’Brien had a policy against running
the auger blades while the hopper grate was raised and he admitted to violating that policy
in order to facilitate the cleaning process.
 8

admitted that they left the hopper grate raised while repositioning the auger blades during the
hopper cleaning process.
Finally, we note that the fact that none of the interviewed employees expressed
dissatisfaction with the training they received from O’Brien is not dispositive. What matters
is the content of this training, and whether it specifically addressed both the hazards
associated with their work and the applicable OSHA standards. See El Paso Crane, 16 BNA
OSHC at 1425 nn.6 & 7, 1993-95 CCH OSHD at p. 41,621 nn. 6 & 7. Not only is it
questionable to find significance in what the employees did not say, but the sufficiency of
an employer’s training should not be measured solely by its employees’ subjective
assessment or, as in this case, the lack of such an assessment. Had O’Brien’s employees
actually expressed an opinion on the adequacy of their training, it would not have ended the
inquiry into whether a violation existed. Their failure to express such an opinion certainly
does not resolve this question. See, e.g., Tri-State Roofing & Sheet Metal, Inc. v. OSHRC,
685 F.2d 878, 881 (4th Cir. 1982) ("The particular views of workmen are not necessarily,
and often times are not, the best determination as to what is safe and what is unsafe.
Convenience rather than safety considerations often dictates a worker’s perspective.").
Accordingly, we find that the training O’Brien provided its employees was inadequate to
satisfy the requirements of § 1926.21(b)(2).

                              GUARDING VIOLATION
      The Secretary has alleged that O’Brien violated § 1926.300(b)(4)(ii) by failing to

properly guard the hopper’s rotating auger blades. O’Brien argues that this standard, which
appears under Subpart I, titled "Tools ! Hand and Power", is not applicable to the hopper,
which O’Brien claims is an integral part of the concrete pump truck and cannot be operated
independently.12 Noting that the Commission’s administrative law judges "have been faced

12
In support of its argument, O’Brien relies on Mid-States Constr. Co., Inc., 6 BNA OSHC
(continued...)
 9

with this argument in previous cases," the judge relied upon three unreviewed judges’
decisions to support his conclusion that § 1926.300(b)(4)(ii) was applicable to the hopper.
He then affirmed the violation based on the fact that "the evidence discloses that the auger
was operated with its moving parts unguarded." We affirm the judge’s decision.

                                   DISCUSSION
   O’Brien’s argument that § 1926.300(b)(4)(ii) is inapplicable to the hopper is not

supported by the wording of the standard. Although entitled "Tools - Hand and Power", it
is apparent that the standards under Subpart I address a wide-range of tools and machinery.
See Daniel Constr., 10 BNA OSHC 1549, 1555, 1982 CCH OSHD ¶ 26,027, p. 32,675 (No.
16265, 1982) (application of § 1926.300(b) not limited to hand-held tools where
requirements of Subpart I address other types of tools). For instance, § 1926.300(b)(4),
whose language was incorporated verbatim from general industry standard § 1910.212(a)(3),
covers point of operation guarding for various types of "machines" including, but not limited
to, shears, power presses, and milling machines. See 44 Fed. Reg. 8577, 8617 (February 9,
1979) (identifying general industry standards which are applicable to construction work).
See also Ladish Co., 10 BNA OSHC 1235, 1237, 1982 CCH OSHD ¶ 25,820, p. 32,281
(No. 78-1384, 1981) (guarding requirements of § 1910.212(a) applicable to moving parts of

12
(...continued)
1301, 1302-03, 1977-78 CCH OSHD ¶ 22,486, p. 27,112 (No. 10932, 1978), a Commission
decision in which the Secretary conceded for unspecified reasons that § 1926.300(b)(2),
which sets forth guarding requirements similar to those of the cited standard, was not
applicable to an unguarded starter pulley for the motor of a wheel mounted cement mixer.
Even though the two-member Commission disagreed over the disposition of two of the three
violations at issue, including the alleged guarding violation, they agreed to affirm the judge’s
decision, but accorded their decision the precedential value of an unreviewed judge’s
decision. Mid-States, 6 BNA OSHC at 1301-02, 1977-78 CCH OSHD at p. 27,110-11.
Such decisions are not binding precedent on the Commission. See Leone Construction Co.,
3 BNA OSHC 1979, 1975-76 CCH OSH ¶ 20,387 (No. 4090, 1976).
 10

all types of industrial machinery unless a more specific guarding standard applies).
As depicted in the product manuals supplied by manufacturer Putzmeister, the
concrete pump appears to be one piece of equipment which is simply "truck-mounted". In
addition, we note that Putzmeister refers to its product as a "machine", not a truck or vehicle.
As such, the hopper can reasonably be characterized as a component of a truck-mounted
machine whose rotating auger blades serve as a point of operation. See Allis Chalmers
Corp., 4 BNA OSHC 1876, 1877, 1976-77 CCH OSHD ¶ 21,341, p. 25,629 (No. 8274,
1976) (unguarded rotating parts, nip points, and points of operation created by rotating rear
wheels of assembled tractors cited under general industry machine guarding standard
§ 1910.212(a)(1) but vacated where tractors were result of manufacturing process, not used
as part of the manufacturing process). As O’Brien has noted, Subpart Q specifically
addresses conditions arising in concrete and masonry construction operations. However,
there is no specific section under that subpart which applies to machine guarding. In fact,
§ 1926.700(a) expressly provides that in addition to the requirements contained under
Subpart Q, "other relevant provisions in parts 1910 and 1926 apply to concrete and masonry
construction operations." Therefore, we find that the guarding requirements of Subpart I are
applicable here.
Turning to the merits of the violation, O’Brien does not dispute that the bolts which
secure the grate over the hopper opening were removed, thereby allowing employees to raise
the grate. It is also undisputed that the point of operation was not guarded at all times that
the auger was operated. Section 1926.300(b)(4)(ii) specifically requires that a point of
operation guard "be so designed and constructed as to prevent the operator from having any
part of his body in the danger zone during the operating cycle". Where the removal of the
bolts allowed employees to raise the grate while the auger blades were rotating, a practice
in which they admittedly engaged during the hopper cleaning process, O’Brien has failed to
 11

adequately protect its employees from this point of operation.13 Accordingly, we find a
violation of § 1926.300(b)(4)(ii).

                                   PENALTIES
   Section 17(j) of the Act, 29 U.S.C. § 666(j), requires that when assessing penalties,

"due consideration" must be given to the employer’s size, the gravity of the violation, the
good faith of the employer, and any prior history of violations. Gravity is typically the most
important factor in determining an appropriate penalty and depends upon the number of
employees exposed, the duration of the exposure, the precautions taken against injury, and
the likelihood that any injury would result. J.A. Jones Constr. Co., 15 BNA OSHC 2201,
2214, 1991-93 CCH OSHD ¶ 29,964, p. 41,033 (No. 87-2059, 1993).
Neither party has addressed the issue of penalties in their briefs before the
Commission. The Secretary has proposed a penalty of $3,500 each for the training violation
and the machine guarding violation, having given reductions for O’Brien’s size and lack of
prior history. For the machine guarding violation, the judge assessed the proposed amount
of $3,500, noting that "[t]here appears to be no quarrel with the penalty." We find this
amount to be appropriate under the penalty criteria of § 17(j) and affirm the penalty as
assessed.
However, we find that a reduction in the penalty proposed for the training violation
is appropriate under the circumstances. Even though O’Brien’s training program failed to
specifically address the need to keep the hopper grate lowered whenever the auger blades
were running, its program did include on-the-job training and the distribution of the manuals

13
In addition to this routine cleaning, employees occasionally raise the grate to chip out
hardened concrete or remove foreign objects that fall into the hopper. There is nothing in
the record, however, to suggest that the auger blades are actually operated on such
occasions. Compliance officer Yellstrom suggested that placing an interlock device on the
hopper grate would have automatically disabled the auger blades whenever employees had
to raise the grate.
 12

published by Putzmeister and the ACPA. O’Brien also provided employees with general
instructions as to the hazards associated with the operation of the concrete pump truck,
including those posed by the rotating auger blades. Therefore, giving good faith credit for
the training O’Brien did provide to its employees, we assess a penalty in the amount of
$1,750.14

14
Commissioner Weisberg disagrees with his colleagues’ decision to significantly lower the
penalty for the training violation ostensibly on the grounds that O’Brien has made some
effort, albeit incomplete, to provide training to its employees. Initially, he notes that under
§ 17(j) of the Act, the gravity of the violation is generally the most important factor in
determining the appropriate penalty. Commissioner Weisberg views the gravity of the
training violation as high in that it posed serious hazards to O’Brien’s employees, with a
high probability of injury as demonstrated by the fatal accident. He notes that there were
serious deficiencies in the employer’s training program including, most notably, its total
failure to train and instruct its employees on the specific hazards associated with cleaning
the hopper, a process which must be done regularly after each concrete pour. O’Brien’s
safety manual, a copy of which was provided to each employee, makes no reference to
procedures for safely cleaning the hopper or to any safety rule prohibiting employees from
running the auger blades while the hopper grate is raised. Commissioner Weisberg believes
that while the employer had safety meetings with its employees on the use of extension
booms around high tension wires and driving accidents, and supplied its employees with
safety manuals published by Putzmeister and the ACPA, such efforts in the context of a
training program with serious deficiencies clearly do not warrant 50 percent off the penalty
assessed for the high gravity training violation resulting from its failure to provide any
specific hopper cleaning instructions to its employees.
 13

                                     ORDER
   We reverse the judge’s decision to vacate the alleged violation of § 1926.21(b)(2) and

assess a penalty of $1,750 (Serious Citation 1, Item 1). We affirm the judge’s decision
finding a violation of § 1926.300(b)(4)(ii) and assess a penalty of $3,500 (Serious Citation
1, Item 2).

                                                     /s/
                                                     Thomasina V. Rogers
                                                     Chairman



                                                     /s/
                                                     Gary L. Visscher
                                                     Commissioner



                                                     /s/
                                                     Stuart E. Weisberg
                                                     Commissioner

Dated: February 16, 2000
 |
SECRETARY OF LABOR, |
Complainant, |
|
v. | OSHRC DOCKET
| NO. 98-0471
O’BRIEN CONCRETE PUMPING, INC., |
|
Respondent. |
|

APPEARANCES:

                     Kayden B. Howard, Esq., Office of the Solicitor, U.S. Department of Labor,
                      Kansas City, Missouri


                     Robert R. Miller, Esq., Stettner, Miller and Cohn, Denver, Colorado

Before: Administrative Law Judge Sidney J. Goldstein
DECISION AND ORDER

      7KLVLVDQDFWLRQE\WKH6HFUHWDU\RI/DERUDJDLQVW2·%ULHQ&RQFUHWH3XPSLQJ

,QFWRDIILUPWKUHHLWHPVRIDFLWDWLRQLVVXHGWRWKHFRPSDQ\E\WKH2FFXSDWLRQDO

6DIHW\ DQG+HDOWK$GPLQLVWUDWLRQIRUWKHDOOHJHGYLRODWLRQVRIVDIHW\UHJXODWLRQV

UHODWLQJWRUHFRJQL]LQJDQGDYRLGLQJXQVDIHFRQGLWLRQVJXDUGLQJPDFKLQHVDQGORFNLQJ

RXWDQGWDJJLQJRXWHTXLSPHQW7KH5HVSRQGHQWGLVDJUHHGZLWKWKHFLWDWLRQDQGILOHG

DQRWLFHRIFRQWHVW$IWHUDFRPSODLQWDQGDQVZHUZHUHILOHGZLWKWKLV&RPPLVVLRQ
DKHDULQJZDVKHOGLQ'HQYHU&RORUDGR

     ,WHPRIWKHFLWDWLRQDOOHJHGWKDW

           7KH HPSOR\HU GLG QRW LQVWUXFW HDFK HPSOR\HH LQ WKH UHFRJQLWLRQ DQG
     DYRLGDQFHRIXQVDIHFRQGLWLRQ V DQGWKHUHJXODWLRQ V DSSOLFDEOHWRKLV
     ZRUN HQYLURQPHQW WR FRQWURO RU HOLPLQDWH DQ\ KD]DUG V  RU RWKHU
     H[SRVXUHWRLOOQHVVRULQMXU\

           D      (PSOR\HHVZHUHQRWWUDLQHGRQVSHFLILFSURFHGXUHV
     UHJDUGLQJ   WKHVDIHRSHUDWLRQDQGFOHDQLQJRIWKHSXPSWUXFNKRSSHUV

LQYLRODWLRQRIWKHUHJXODWLRQIRXQGDW&)5† E  ZKLFKLVVKRZQ

EHORZ

                 7KHHPSOR\HUVKDOOLQVWUXFWHDFKHPSOR\HHLQWKHUHFRJQL
     WLRQ DQGDYRLGDQFHRIXQVDIHFRQGLWLRQVDQGWKHUHJXODWLRQVDSSOLFDEOH
           WRKLVZRUNHQYLURQPHQWWRFRQWURORUHOLPLQDWHDQ\KD]DUGVRU
     RWKHUH[SRVXUHWRLOOQHVVRULQMXU\

     ,WHPRIWKHFLWDWLRQDOOHJHGWKDW

           7KHSRLQWRIRSHUDWLRQRIPDFKLQHVZKRVHRSHUDWLRQH[SRVHVDQ
     HPSOR\HHWRLQMXU\ZDVQRWJXDUGHG

           D      (PSOR\HHVZHUHH[SRVHGWRWKHKD]DUGRIURWDWLQJ
           EODGHV IURP WKH SXPS WUXFN KRSSHU DXJHUV LQ WKDW WKH
           KRSSHUJUDWHV JXDUGV ZHUHQRWVHFXUHO\IDVWHQHGWRWKH
           KRSSHUDQGZHUHIUHTXHQWO\UDLVHGGXULQJFOHDQLQJLQWKH
           ILHOG

LQYLRODWLRQRIWKHUHJXODWLRQDW&)5† E  LL ZKLFKUHDGV

                   LL     7KH SRLQW RI RSHUDWLRQ RI PDFKLQHV
                  ZKRVH RSHUDWLRQ H[SRVHV DQ HPSOR\HH WR
                  LQMXU\VKDOOEHJXDUGHG7KHJXDUGLQJGHYLFH
                  VKDOO EH LQ FRQIRUPLW\ ZLWK DQ\ DSSURSULDWH
                  VWDQGDUGV WKHUHIRU RU LQ WKH DEVHQFH RI

                                         15

DSSOLFDEOH VSHFLILF VWDQGDUGV VKDOO EH VR
GHVLJQHGDQGFRQVWUXFWHGDVWRSUHYHQWWKH
RSHUDWRUIURPKDYLQJDQ\SDUWRIKLVERG\LQ
WKHGDQJHU]RQHGXULQJWKHRSHUDWLQJF\FOH

  ,WHPRIWKHFLWDWLRQVWDWHVWKDW

         (PSOR\HHV ZHUH SHUPLWWHG WR SHUIRUP PDLQWHQDQFH RU UHSDLU
  DFWLYLW\RQHTXLSPHQW VXFKDVFRPSUHVVRUVPL[HUVVFUHHQVRUSXPSV
  XVHG IRU FRQFUHWH DQG PDVRQU\ FRQVWUXFWLRQ DFWLYLWLHV  ZKHUH WKH
  LQDGYHUWHQW RSHUDWLRQ RI WKH HTXLSPHQW FRXOG RFFXU DQG FDXVH LQMXU\
  ZLWKRXWDOOSRWHQWLDOO\KD]DUGRXVHQHUJ\VRXUFHVEHLQJORFNHGRXWDQG
  WDJJHG

  D     (PSOR\HHV ZHUH SHUPLWWHG WR SHUIRUP SXPS WUXFN KRSSHU
  PDLQWHQDQFH VXFK DV FOHDQLQJ IRUHLJQ REMHFW UHPRYDO DQG OXEULFDWLRQ
  ZLWKRXWILUVWORFNLQJRXWDQGWDJJLQJRXWWKHKRSSHUDXJHUDQGWKXV
  ZHUH VXEMHFWHG WR WKH XQH[SHFWHG DFWLYDWLRQ RI WKH URWDWLQJ DXJHU
  EODGHV

LQYLRODWLRQRIWKHUHJXODWLRQIRXQGDW&)5† M  ZKLFKUHDGVDV
IROORZV

   M     /RFNRXW7DJRXW3URFHGXUHV  1RHPSOR\HHVKDOOEHSHUPLWWHG
  WR SHUIRUP PDLQWHQDQFH RU UHSDLU DFWLYLW\ RQ HTXLSPHQW VXFK DV
  FRPSUHVVRUVPL[HUVVFUHHQVRUSXPSVXVHGIRUFRQFUHWHDQGPDVRQU\
  FRQVWUXFWLRQ DFWLYLWLHV  ZKHUH WKH LQDGYHUWHQW RSHUDWLRQ RI WKH
  HTXLSPHQWFRXOGRFFXUDQGFDXVHLQMXU\XQOHVVDOOSRWHQWLDOO\KD]DUGRXV
  HQHUJ\VRXUFHVKDYHEHHQORFNHGRXWDQGWDJJHG

  7KHUHFRUGGLVFORVHVWKDWWKH5HVSRQGHQWVSHFLDOL]HGLQSODFLQJFRQFUHWHLQ

DUHDVWKDWDQRUGLQDU\FRQFUHWHWUXFNFDQQRWUHDFK$VVWDWHGLQWKHLQWURGXFWLRQWR

WKH&RPSODLQDQW·VEULHIRQ-DQXDU\.HYLQ'LOORQIHOOLQWRRUZDVSXOOHGLQWR

DKRSSHUDWWDFKHGWRRQHRIWKHFRPSDQ\·VFRQFUHWHSXPSLQJWUXFNV$URWDWLQJDXJHU

LQVLGHWKHKRSSHUFUXVKHG'LOORQ·VFKHVWDVSK[LDWLQJKLP

                                      16

7ZRFRPSOLDQFHRIILFHUVLQWHUYLHZHGDQXPEHURI5HVSRQGHQW·VHPSOR\HHV$

PDQDJHPHQWUHSUHVHQWDWLYHLQIRUPHGWKHOHDGLQYHVWLJDWRUWKDWDOWKRXJKWKHUHZDV

QRVSHFLILFPHWKRGWRFOHDQWKHKRSSHUDKD]DUGFRXOGRFFXULIWKHKRSSHUJUDWHZHUH

UDLVHGZKLOHWKHKRSSHUZDVDFWLYDWHG,QVWUXFWLRQVDFFRPSDQ\LQJWKHWUXFNFDXWLRQ

WKDWQRZRUNVKRXOGEHSHUIRUPHGZLWKRXWDFORVHGWLJKWO\VFUHZHGDJLWDWRUJULG7KH

5HVSRQGHQWUHPRYHGIL[HGEROWVZKHQDWUXFNZDVUHFHLYHG$FFRUGLQJWRRQHRIILFHU

HLJKWRIQLQHHPSOR\HHVLQWHUYLHZHGVWDWHGWKDWWKH\ZHUHQRWWROGWRUXQWKHDXJHU

ZLWKWKHJUDWHXS7KHUHZDVDOVRQRORFNRXWWDJRXWSURFHGXUH

   8SRQPRUHGHWDLOHGH[DPLQDWLRQWKHOHDGFRPSOLDQFHRIILFHUWHVWLILHGWKDWWKH

URWDWLQJ DXJHU ZRXOG EH D KD]DUG LI WKH JUDWH ZHUH XS +RZHYHU WKHUH ZDV QR

H[DPSOHRIDQDXJHUVWDUWLQJZLWKRXWSXUSRVHO\WXUQLQJLWRQ7KHUHZDVQRUHVLGXDO

SRZHULQWKHK\GUDXOLFV\VWHPUHODWHGWRWKHDXJHU,WZDVFRPSDQ\SROLF\QRWWRUXQ

WKHDJLWDWRUZKHQWKHJUDWHZDVXS+HGLGQRWNQRZLIWKHSXPSZDVPDQXIDFWXUHG

ZLWKDORFNRXWWDJRXWGHYLFH

   ,QIRUPDWLRQREWDLQHGE\WKHRWKHUFRPSOLDQFHRIILFHUDOVRFRQILUPHGWKDWWKH

5HVSRQGHQWKDGQRORFNRXWWDJRXWSURJUDPRUVSHFLILFLQVWUXFWLRQVUHJDUGLQJWKH

JUDWHZKHQWKHDJLWDWRUZDVRQRURII(DFKRSHUDWRUKDGKLVRZQPHWKRGFRQFHUQLQJ

WKHFOHDQXSRIWKHDXJHU

   $QXPEHURIHPSOR\HHVZHUHTXHVWLRQHGUHJDUGLQJWKHLUWUDLQLQJ1RWHVWDNHQ

DWWKHFRQYHUVDWLRQVLQGLFDWHGWKDWWKHRSHUDWRUVZHUHWUDLQHGLQWKHZRUNDVVLJQHG

WRWKHP7KXV:LOOLDP%RRNHUKDGWUDLQLQJZLWKDSUHYLRXVHPSOR\HUDQGDPRQWK·VRQ

WKHMRE WUDLQLQJZLWKWKH5HVSRQGHQW&KDUOHV/DPEDWWHQGHGDFRQFUHWHSXPSLQJ

VFKRROIRUVL[PRQWKVSOXVWKUHHPRQWKVRQWKHMREWUDLQLQJZLWKYDULRXVRSHUDWRUV

ZKRZDWFKHGKLP-HII+RRNZHQWRXWZLWKWUDLQHUVIRUWZRRUWKUHHZHHNVDQGZDV

VKRZQKRZWRGRWKHZRUN%UHWW$YHQULHSDOVRKDGRQWKHMREWUDLQLQJDWWHQGHG

                                        17

VDIHW\PHHWLQJVDQGZDVJLYHQDVDIHW\PDQXDO0LNH&KDQQHVVKDGWKHMREWUDLQLQJ

DQGKHDFFRPSDQLHGRWKHURSHUDWRUVZKRJDYHKLPLQVWUXFWLRQV5DQG\5XPS]DKDG

WKUHHPRQWKVRQWKHMREWUDLQLQJ5RQ7HPSOHWRQRSHUDWHGSXPSHUVVLQFHDQG

EHFDXVH RI WKLV H[SHULHQFH GLG QRW QHHG DGGLWLRQDO WUDLQLQJ 0DUYLQ /DNH KDG WZR

\HDUV·H[SHULHQFHDVDSXPSHURSHUDWRUDQGZDVJLYHQRQHZHHNRQWKHMREWUDLQLQJ

7LP &DUSHQWHU ZDV DOUHDG\ DQ H[SHULHQFHG RSHUDWRU ZKHQ KH VWDUWHG ZLWK WKH

FRPSDQ\DQG\HWZDVJLYHQDGGLWLRQDORQWKHMREWUDLQLQJ

   0U/HRQ7+DNH5HVSRQGHQW·VUHJLRQDOPDQDJHULVLQFKDUJHRIWKHFRPSDQ\·V

VDIHW\SURJUDP+HKDVWKLUW\HDUV·H[SHULHQFHLQWKHFRQFUHWHPL[LQJILHOGDQGLV

RQ WKH VDIHW\ FRPPLWWHH RI WKH &RORUDGR &RQWUDFWRUV DQG &RORUDGR 5HGL0L[

$VVRFLDWLRQV+HPDGHVXUHWKDWDOOQHZKLUHVKDGVDIHW\WUDLQLQJ,QDGGLWLRQWKH\

ZHUHIXUQLVKHGZLWK3XW]PHLVWHU·VWUXFNLQVWUXFWLRQVZKLFKZHUHORFDWHGLQWKHWUXFN

DWDOOWLPHV7KHFRPSDQ\DOVRFRQGXFWHGPRQWKO\VDIHW\PHHWLQJVDQGHPSOR\HHV

YLHZHGVDIHW\YLGHRV7KHYLFWLPZDVDQH[SHULHQFHGRSHUDWRU$WUXFN

DXJHUFDQQRWEHRSHUDWHGDFFLGHQWDOO\DQGKHQHYHUVDZDQ\RQHRSHUDWHWKHDXJHU

ZLWKWKHJUDWHXS,IWKLVZDVGRQHLWZDVLQYLRODWLRQRIFRPSDQ\VDIHW\UXOHV

   0U*DU\=LONFRQILUPHG0U+DNH·VYHUVLRQRIVDIHW\WUDLQLQJ+HDGGHGWKDW

KHJDYHDWOHDVWRQHPRQWKRQWKHMREWUDLQLQJWRDOOQHZHPSOR\HHV&RQFUHWHSXPS

WUXFNPDQXIDFWXUHUVDOVRJDYHVDIHW\WDONVWRRSHUDWRUV&RSLHVRIWKH$PHULFDQ

&RQFUHWH 3XPSLQJ $VVRFLDWLRQ PDQXDO DQG WKH 5HVSRQGHQW·V VDIHW\ SURJUDP ZHUH

LVVXHGWRDOOHPSOR\HHV

   ,WHP  RI WKH FLWDWLRQ OLVWV D YLRODWLRQ RI WKH UHJXODWLRQ IRXQG DW  &)5

† E  LQ WKDW 5HVSRQGHQW·V HPSOR\HHV ZHUH QRW WUDLQHG RQ VSHFLILF

SURFHGXUHVUHJDUGLQJWKHVDIHRSHUDWLRQDQGFOHDQLQJRIWKHSXPSWUXFNKRSSHUV7KH

&RPSODLQDQWDVVHUWVWKDWWKHFLWDWLRQZDVLQRUGHUEHFDXVHWKHUHVKRXOGKDYHEHHQ

                                           18

VSHFLDOL]HGWUDLQLQJQRWWRUXQWKHDJLWDWRUZKLOHFOHDQLQJZDVSHUIRUPHGZLWKWKH

JUDWHXS2QHRIWKHRIILFHUVXQGHUVWRRGWKDW5HVSRQGHQWGLGQRWWUDLQLWVHPSOR\HHV

UHJDUGLQJVDIHFOHDQLQJSURFHGXUHV

  7KLVLQIRUPDWLRQLVLQFRQWUDVWZLWKWHVWLPRQ\RI5HVSRQGHQW·VUHJLRQDOFKLHI

ZKRZDVUHVSRQVLEOHIRUVDIHW\DQGZKRWHVWLILHGWKDWDOOQHZKLUHVZHUHLQVWUXFWHG

LQWKHVDIHRSHUDWLRQRIWKHFHPHQWSXPSV

  :LWKWKLVGLYHUVLW\RIRSLQLRQ,UHIHUWRWKHFRPSOLDQFHRIILFHU·VQRWHVWDNHQ

DWWKHWLPHRIWKHLQWHUYLHZ$VUHFRXQWHGKHUHWRIRUHDOOHPSOR\HHVLQWHUYLHZHG

GLVFXVVHGWKHQDWXUHRIWKHLUWUDLQLQJ6RIDUDVDSSHDUVLQWKHQRWHVQRWDVLQJOH

HPSOR\HHH[SUHVVHGGLVVDWLVIDFWLRQZLWKKLVWUDLQLQJZLWKUHJDUGWRVDIHW\

  ,SODFHPRUHUHOLDQFHRQWKHZULWWHQQRWHVWDNHQDOPRVWLPPHGLDWHO\DIWHUWKH

DFFLGHQWWKDQXSRQWKHFRPSOLDQFHRIILFHU·VUHFROOHFWLRQRIWKHLQIRUPDWLRQVXSSOLHG

LQFRQYHUVDWLRQVZLWKWKHHPSOR\HHV7KH&RPSODLQDQWKDVQRWHVWDEOLVKHGWKDWWKH

5HVSRQGHQWIDLOHGWRWUDLQLWVHPSOR\HHVUHJDUGLQJWKHVDIHRSHUDWLRQDQGFOHDQLQJRI

WKHSXPSWUXFNKRSSHUV,WHPRIWKHFLWDWLRQLVWKHUHIRUH9$&$7('

  $VQRWHGLWHPRIWKHFLWDWLRQUHTXLUHVDQHPSOR\HUWRJXDUGWKHSRLQWRI

RSHUDWLRQ RI PDFKLQHV ZKRVH RSHUDWLRQ H[SRVHV DQ HPSOR\HH WR LQMXU\ 7KH

5HVSRQGHQWXUJHVWKDWWKLVLWHPVKRXOGEHYDFDWHGEHFDXVH  WKHVWDQGDUGGHDOV

ZLWKKDQGDQGSRZHUWRROVRQO\DQGVKRXOGQRWDSSO\WRDWHQZKHHOHGFRQFUHWHSXPS

WUXFNDQG  WKHSRLQWRIRSHUDWLRQZDVJXDUGHGE\DJUDWH

  &RPPLVVLRQ$GPLQLVWUDWLYH/DZ-XGJHVKDYHEHHQIDFHGZLWKWKLVDUJXPHQWLQ

SUHYLRXVFDVHV$VSRLQWHGRXWE\WKH6HFUHWDU\$/-·VKDYHDIILUPHGYLRODWLRQRI

WKLVVWDQGDUGLQYROYLQJDFHPHQWPL[HUDQGDFRQFUHWHSXPSLQJHQJLQH/DWHUFDVHV

LQFOXGH6HFUHWDU\RI/DERUY+HLPHUPDQ0DVRQU\,QF26+5&26+&

ZKHUHWKH&RPPLVVLRQOHWVWDQGDQDIILUPDQFHRIDYLRODWLRQRI&)5†

                                     19

 E LQYROYLQJDPRUWDUPL[HU6HFUHWDU\RI/DERUY&XWKHUV&RUSRUDWLRQ

GED :RRGODQG &RQVWUXFWLRQ 26+5&   26+&  LQ ZKLFK FDVH D

YLRODWLRQRIWKHVDPHVWDQGDUGZDVDIILUPHGLQYROYLQJDFHPHQWILQLVKLQJPDFKLQHDQG

6HFUHWDU\RI/DERUY3 00DVRQU\,QF26+5&26+&ZKHUHLQ

LWZDVKHOGWKDWWKHIDLOXUHWRJXDUGURWDWLQJEODGHVRQDPXOOHUPL[HUXVHGWRPL[

PRUWDUZDVDYLRODWLRQRIWKHVWDQGDUGLQLVVXH

  7KXVVLQFHWKHHYLGHQFHGLVFORVHVWKDWWKHDXJHUZDVRSHUDWHGZLWKLWVPRYLQJ

SDUWVXQJXDUGHGWKLVLWHPRIWKHFLWDWLRQLV$)),50('

  ,WHPRIWKHFLWDWLRQFKDUJHVWKDWWKH5HVSRQGHQWYLRODWHGWKHUHJXODWLRQ

IRXQG DW  &)5 † M L  7KDW UHJXODWLRQ UHTXLUHV ORFNRXW WDJRXW

SURFHGXUHRQHTXLSPHQWZKHUHWKHLQDGYHUWHQWRSHUDWLRQRIWKHHTXLSPHQWFRXOGRFFXU

DQGFDXVHLQMXU\XQOHVVDOOSRWHQWLDOO\KD]DUGRXVHQHUJ\VRXUFHVKDYHEHHQORFNHGDQG

WDJJHG

  7KH&RPSODLQDQW·VSRVLWLRQLVWKDWWKHUHFRXOGEHVWRUHGHQHUJ\ZKLFKFRXOG

FDXVHDQXQH[SHFWHGVWDUWRIHTXLSPHQW7KH5HVSRQGHQWUHSOLHVWKDWWKHDXJHUFRXOG

QRWVWDUWE\LWVHOIDQGWKDWWKHFRPSOLDQFHRIILFHUFRXOGRIIHUQRH[DPSOHZKHUHDQ

DXJHUFRXOGVWDUWXSZLWKRXWSXUSRVHO\WXUQLQJLWRQ

  6LQFHWKH&RPSODLQDQWKDVQRWHVWDEOLVKHGWKDWWKHDXJHUFRXOGEHXQLQWHQWLRQ

DOO\RSHUDWLRQDOWKLVLWHPRIWKHFLWDWLRQLV9$&$7('

  ,Q VXP LWHP  RI WKH FLWDWLRQ LV 9$&$7(' LWHP  RI WKH FLWDWLRQ LV $)

),50('DQGLWHPRIWKHFLWDWLRQLV9$&$7('

                                        20

7KHUHDSSHDUVWREHQRTXDUUHOZLWKWKHSHQDOW\IRULWHPDQGD

SHQDOW\LVDVVHVVHG

                                             6LGQH\-*ROGVWHLQ
                                             -XGJH26+5&

'DWHG December 15, 1998

                                   21